In February 2010, Reed Elsevier Plc, the London-based publisher of Variety magazine and owner of the Lexis-Nexis database, forecast a lower profit margin for 2010 after 2009 sales were little changed and costs were on the rise. The static sales during 2009 were by and large due to lower advertising budgets of clients and fewer people attended its conferences; both reflections of an economic downturn. The company proposed to sell off a number of US publishing titles during 2010.

By February 2011, non-core published titles has been sold and the company was forecasting increased profit margins for 2011. The increased margins were attributable to a gradual market recovery and cost reductions at the firm’s core businesses. The company reported stable profit for both 2009 and 2010 and was planning to sell off less profitable businesses during 2011. It also plans to make some small acquisitions during 2011, according to CEO Erik Engstrom, but has no plans to divest of key titles like Variety or the Lexis-Nexus database.

Questions 

1. The piece above refers to profit margins, not margin of safety. But how would decreasing profit margins affect the margin of safety of any of the businesses in the Reed Elsevier group?

2. Based on the information given above, how do you think the margin of safety was affected during 2009 and 2010?